Administration
Monday 8 March 2010
Many well known companies have gone into administration lately – but what does this term mean and what are the repercussions?
What is administration?
A company goes into administration if it has major financial difficulties and faces bankruptcy. The main aim of going into administration is to see if the company can be saved.
An administrator, also known as a financial auditor, will be brought in to run the company’s accounts. They figure out which debts need to be paid off first and will try to find the funds to pay them. They may do this by finding a buyer, another company that is willing to take over the business and its debts. They may also try to make a new deal with the creditors – the people or companies that the falling business owes money to.
Sometimes the administrator could decide to sell the company’s products for much cheaper than usual. This is known as liquidation.
Who is affected?
The company and its employees
The people most at risk when a company goes through administration are the employees. If the company is in real financial danger, it will have to make job cuts. Earlier this year, the last remaining Woolworths stores closed for good. In total, 27,000 Woolies staff were left unemployed.
If the company can be saved by a buyer then employees may notice a few changes to their original contract. Once the transfer is complete, employees could find that their wages and other terms and conditions have changed. Find out about transfers here.
You
The company’s employees aren’t the only people who are affected. You could feel the effects too. The normal products and services that you may be accustomed to could be suddenly cut off or changed.
Trouble at Portsmouth
Portsmouth FC has become the first club in the Premier League to ever go into administration. It is rumoured to be £70 million in the red!
The club has had it rough these past few years. Sometimes players weren’t paid on time – ex-Portsmouth player Sol Campbell is currently suing the club over £1.7 million that he is owed in unpaid fees and bonuses.
This isn't good news for the club or its fans. The administrator may decide to make some job or pay cuts to reduce the club's debts, which could mean that Portsmouth loses some of its players. On top of this, the team could lose nine points. As a rule, the Premier League sets a nine point punishment to any team that goes into administration. If this happens Portsmouth will most likely be relegated from the Premier League.
Help!
If the company you work for is currently going through administration, don’t panic! As an employer you still have rights.
